A remortgage is the process of paying off one mortgage with the proceeds from a new mortgage using the same property as security. But how much does remortgaging cost and what are the fees called that you should look out for?
Don’t be hasty - check your current contract
For some borrowers the cost of remortgaging could be just a few hundred pounds but for others it could be much more. That’s why comparing your options and carefully reading your current contract are good places to start before you even think about making a remortgage application.
Diving into an application without knowing exactly how much you could be charged for leaving your current agreement early, is a big mistake. Some lenders charge exit fees and these can cost into the thousands if you’re not careful to stick to the terms of your contract.
What fees are involved with remortgaging?
Some of these fees might not apply to you and your mortgage but they’ve been included just in case so you’re prepared.
What is it?
Early Repayment Charge
An early repayment charge is a penalty applied if you repay your mortgage (or overpay more than is allowed) during a tie-in period. This is typically the length of time you are on an initial deal, for example, fixed for two, three, five years etc.
Deeds Release Fee
Known as a 'deeds release fee' or an 'admin charge', this is paid to your existing lender so they can forward on the property's title deeds to your solicitor.
This is a cost associated with taking out a new mortgage. It used to be charged to cover administration costs but now it's the key part of the true cost of a mortgage, along with the interest rate. It can also be called a product fee, mortgage fee or booking fee.
Lenders require a valuation of the property you’re buying or remortgaging for their security. This fee covers the investigation of the property to identify any issues that could prevent them from selling it in the event that they have to repossess. This fee can typically range between £250 - £1,500 but often it can be free when negotiating a remortgage.
This can also be free in some cases, though it will depend on the lender and the remortgage contract. This fee covers any legal work that’s required to remove the original lender's interest from the property and register the new lender.
Mortgage Broker Fee
Some mortgage brokers charge a flat fee for their advice whereas others charge a percentage of the loan amount. The actual amount you pay will depend upon your circumstances and the market value of the property. With The Mortgage Hut, for example, the fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.
New mortgage repayments
The amount you pay for your new mortgage will depend on lots of factors like the interest rate, the amount you borrowed, the type of mortgage you have and how long the contract lasts for. Typically, the longer term time for your mortgage, the more interest you’re charged. However, extending your mortgage term can also spread the cost of your mortgage, so work out your new repayments with a broker before making a switch.
How does an early repayment charge work?
Every lender will charge their own early repayment charge (ERC) so the following figures are purely hypothetical to give you an idea about how lenders charge customers that want to exit their contract via a remortgage or overpayments.
Most lenders charge a percentage of the outstanding mortgage amount. For example, on a five-year tracker deal, the early repayment charge could be 5% in year one, 4% in year two, 3% in year three and so on. So on a £200,000 outstanding mortgage:
5% is equivalent to £10,000
4% is equivalent to £8,000
3% is equivalent to £6,000
2% is equivalent to £4,000
1% is equivalent to £2,000
Does my early repayment charge make a remortgage too expensive?
Not always. Some lenders have lower ERCs that range in the hundreds while others charge significantly more, making it more expensive to leave a mortgage contract early. Lenders do this because if you remortgage and settle your previous mortgage agreement early, they lose out on money that would have otherwise been earned in interest.
Charging an ERC can make up for the difference or deter people from leaving. The good news is that sometimes the savings made from switching mortgage deals can outweigh the cost of ERCs.
Can I remortgage without paying an early repayment charge?
Yes this may be possible depending on your lender and the terms in your contract. Usually, if you remortgage after your fixed rate or promotional period ends i.e. at the end of a two-year, three-year, five-year fix etc, then you won’t be charged. However, if you switch before that period ends, you could face paying a percentage of the remaining mortgage balance.
Work out whether a remortgage is worth it for you
Paying an early repayment charge can make sense if:
You can get a remortgage deal with a much lower monthly payment than your current one.
You're concerned about interest rate rises that could make your repayments higher by the time your current mortgage deal comes to an end.
It’s important to calculate the difference with lots of different lenders before you make a decision about remortgaging, preferably with a mortgage broker who knows what to look out for in a contract and which lenders you’d be eligible to apply for.
After all, there’s no point in calculating how much a new mortgage would be with a lender that won’t accept you.
Will I get accepted for a remortgage?
Lot of people make the mistake of thinking that because they already have a mortgage, they’ll automatically get accepted for a remortgage elsewhere but that’s not always the case.
Every lender has their own set of criteria that they refer to when deciding whether or not to accept a borrower. The best rates and deals are reserved for those with impeccable affordability, stable incomes and a low debt-to-income ratio.
If you’ve got a high amount of debt in relation to your income, or have missed payments for loan or utility bills in the last six years, you may want to seek advice from a bad credit mortgage broker because they can recommend the lenders with criteria that you’re more likely to get approved for.
Applying to a lender without checking your eligibility is a bad idea because if you get rejected, that can remain visible on your credit report for six years, for future banks and lenders to see.
Is a remortgage right for me?
The cost of remortgaging will be different for everyone because mortgage agreements vary so much from person to person.
With interest rates rising and expected to rise further in 2022/2023, we’re receiving lots of enquiries about whether now is a good time to remortgage to a lower rate or lock in a long-term rate for more certainty. What's right for you will depend on your financial situation, whether you’re on a fixed-rate or variable-rate mortgage and your appetite for taking on risk.
Remortgaging could help you reduce your monthly outgoings, decrease your overall mortgage amount or allow you to borrow more but before you switch, check your eligibility with a qualified broker and take your time to know the key details about your current contract and any hypothetical new contract that you’re considering - it could just save you money.
Remortgage advice now
The Mortgage Hut team is ready and waiting to help. We’re an approachable bunch of professionals that take a non-judgemental approach to every case. Whether you need to remortgage to consolidate debt, or just to get a lower interest rate, we’re here to help.
Call 023 8098 0304 or fill out some basic details using our contact form and the right person will contact you soon with the information you need.